Azure's Success Shows Microsoft Gaining Ground in Cloud Computing

NEWS ANALYSIS: The growth and development of Microsoft's Azure cloud services shows that Microsoft is catching up and getting ready to play a leading role in cloud computing.

Microsoft gets a lot of justified blame for faltering in smartphones and tablets. However, while the company has a long way to go to catch up in mobile, it is playing a very strong catch-up game in cloud computing.

Last week the company touted its cloud success in its quarterly analyst call, published a memo outlining a raft of new features and made an acquisition that didn’t get a whole lot of media play, but will buttress the company’s plan to be an easy on-ramp to the cloud and to deliver applications developed by tying together API-based services.

The company’s Azure cloud service has been enjoying triple digit growth, and the cloud computing unit (which also includes the Microsoft Office 365 line) grew at 103 percent in the past quarter, company officials said during its analyst call last week.

Both Azure and Office 365 posted triple-digit increases. Last spring the company said Azure and related cloud software account for $1 billion in yearly revenue. The company does not break out Azure revenues as a separate item, which is also true of Amazon Web Services. Although Microsoft trails Amazon in the cloud segment, the company has continued to improve since the Azure introduction in 2008.

At that introduction, then-CTO Ray Ozzie (an executive who Microsoft should never have lost) said, “Today marks a turning point for Microsoft and the development community. We have introduced a game-changing set of technologies that will bring new opportunities to Web developers and business developers alike.” He was right; it just took about five years for the company to deliver on the promise.

Why the growth? There are two reasons. One: Microsoft has shown a willingness to allow non-Microsoft products to be part of the cloud structure. And two, and more importantly: the Azure offerings are designed to provide an easy on-ramp from on-premise applications to hybrid cloud computing.

Allocating additional servers, unifying identity management and building disaster recovery via cloud storage are very straightforward (although not always glitch-free) point and click operations. Last week the company purchased Apiphany, an API management delivery platform to make building mesh applications easier.

In a memo last week, which was overshadowed by Microsoft’s strong overall financial report, the Azure team introduced the 2.2 version of the software development kit for Azure. In addition to the 2.2 SDK, the Azure team added a range of enterprise-oriented features, including additional cloud data backup services, a Hyper-V recovery manager, SQL always-on for high availability applications and further integration with Windows Active Directory.

The feature list is strong, and if you read through the memo to the user comments, you will find that like all new feature sets, the updates are not without some glitches, but overall Azure has been on a rapid ramp to move from simply providing infrastructure services to providing broad platform services.

During the Oct. 24 earnings call, in response to a question, Microsoft financial execs said that cloud sales have proven additive to the revenue base rather than simply cannibalizing on-premise revenues. In the unfolding Microsoft Azure model, the ability to add Azure services makes the concept of building a hybrid cloud a straightforward process.

If the Azure team is able to maintain a somewhat vendor-neutral position (a really big trick at Microsoft) and an open-pricing platform, the crossover cloud strategy incorporating infrastructure, platform and application services will prove to be the real Microsoft segment leader in adapting to the new mobile, cloud and social media enterprise infrastructure model.

The application piece of the cloud model was bolstered by Microsoft's acquisition of the Apiphany API management delivery platform. The approximately year-old, Washington D.C.-based company was acquired for an undisclosed amount. The company offered a $50 per month API management platform pricing model.

Although Microsoft deserves to be dinged for missing the mobile smartphone and tablet market and now trying to spend its way out of that hole, the development and rise of Azure with its tight integration to the on-premise enterprise infrastructure is a source of growth and development other cloud providers may find themselves emulating.

Eric Lundquist is a technology analyst at Ziff Brothers Investments, a private investment firm. Lundquist, who was editor-in-chief at eWEEK (previously PC WEEK) from 1996-2008, authored this article for eWEEK to share his thoughts on technology, products and services. No investment advice is offered in this article. All duties are disclaimed. Lundquist works separately for a private investment firm, which may at any time invest in companies whose products are discussed in this article and no disclosure of securities transactions will be made.